Renewed prospects post IJM Plantations

■ 1HFY22 results were below expectations; core net profit fell 92% yoy.
■ Overall performance was hit by losses for highways and weak billings.
■ Contract flows outlook has improved; Add retained with higher TP.

1HFY6/22 below expectations but declares 15 sen special dividends

IJM Corp’s overall performance in 1HFY3/22 was weighed down by weak billings and low traffic volumes for its toll highways as a result of the various lockdowns YTD. 2QFY22 revenue fell 28.2% yoy (-33% qoq) as construction, property development and infrastructure divisions took the biggest hits but was partially offset by the industries division (higher delivery of piles). The sale of the entire 56.2% stake in IJM plantations was completed on 6 Sep and the group booked RM632.4m gain on disposal in 2QFY22.
Excluding the gains and stripping out IJM Plantations earnings, 2QFY22 slipped into a core net loss of RM29.3m (for continuing operations), weighed by losses for its domestic toll highways and overseas infra assets. 1HFY22 revenue grew marginally by 0.9% yoy, supported by robust property inventory sales and higher delivery of piles and quarry products but dragged by the 16-17% yoy decline for construction and infrastructure divisions. Overall, 1HFY22 core net profit of RM4.4m was below our and consensus forecasts of RM334m-351m as we had not accounted for the deconsolidation of IJM plantations. The 92% yoy plunge in core net profit also included pretax loss of RM15.7m from the toll highway division. A positive in 2QFY22 was the 15 sen special dividends (RM1.5bn proceeds from IJM Plantation deal), on top of the normal interim DPS of 2 sen. Total DPS of 17 sen translate into an attractive dividend yield of 9.5% in FY22F.

Improving prospects post divestment of IJM Plantations

Prospects for the construction division look positive in 2HFY22. The group targets RM2bn new contracts including potential additional spurline packages from the East Coast Rail Link (ECRL) worth RM500m-600m and private sector-driven contracts. Post the divestment of IJM Plantations, the balance RM430m proceeds has been earmarked to explore new ventures, including private finance initiatives (PFI), given its stronger balance sheet and lower net gearing of 0.25x at end-Sep. The group has submitted to the government a highway divestment proposal for its three domestic highways, which is currently being reviewed. Highway traffic volume at end-Sep had recovered to pre-pandemic levels. The group targets RM1.7bn new property sales in FY3/22F while unbilled sales stood at RM1.4bn. The outstanding construction order book is RM4.5bn.

Add retained with higher TP; 9.5% dividend yield for FY22F

We cut FY22-24F EPS by 15-23% to reflect the deconsolidation of IJM Plantations and raise FY22F DPS to 17 sen to include the special dividends. We raise TP to RM2.17 (20% RNAV disc.) as we roll over to end-CY22F. Reiterate Add as we believe contract flows will pick up in 1HCY22F. Upside risks: job flows and new growth ventures post IJM Plantations; downside risk: weaker earnings.